The Pros and Cons of Adapting a Universal Currency

The Pros and Cons of Adapting a Universal Currency
  • Opening Intro -

    Given the intricacies of utilizing different currencies, why can’t the world just adopt a universal currency to make things simple?

    That is one of the thoughts many people might have stumbled upon, once in a while.

    One can just travel anywhere without the need to think about exchange rates and the like.

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But is it really possible to have a universal currency? Well, technically speaking, it is possible. However, one must weigh its pros and cons to know whether it would be truly be a convenient tactic, or would it just bring about bigger problems to all the member countries.

Pros

  • It helps aid exchange rate uncertainty. Adapting a universal currency would help alleviate the complications of the unstable changes in exchange rate, further enhancing business trades, which could then result in a noteworthy growth in the economy.
  • It can help lessen interest rates and the possibility of inflation. Given the utilization of a single currency, there a lesser probability for the Central Bank to keep the interest rate and inflation high. They might even strive to keep it as low as possible. Lesser interest rates and lesser increase in deflation would then ramp up more business investments.
  • It can result in price transparency. Due again to a single currency, it would be easier for people to compare prices, which would help them purchase less expensive merchandise and supplies (whether it be from their country or not).
  • Transaction would be less difficult. Since all member countries are utilizing a single currency, people would no longer need to have their money changed when traveling (in the case of the tourists, for example). Furthermore, there’s no need to pay for transaction costs, which could help them save more money.

Cons

  • Loss of governance over deciding about monetary policy. All member countries would not have the advantage of using the decline in a country’s currency to boost their own country’s economy.

    They won’t have the chance to impose polices, such as tax cuts, which they consider to be suitable for their respective country. Also, the country would not be able to protect their wealth, as they have no control over their currency.

  • Deprivation of national sovereignty. Every country is not as strong as the other, in terms of their structure and economy. Now the level of cooperation should be really sufficiently high to cope with issues such as interest rates, inflation, and shocks.
  • Complication in business cycle. There would always be countries who need higher interest rates to combat the inflation they were encountering. This may not necessarily be the case for other countries, as some may even need lower interest rates, contrary to the other.

    The problem with this is that, since they don’t have control over fiscal and monetary policies, it would be harder for them to set interest rates to their benefit, as what might benefit them would impede the other’s growth. This then, could create a financial crisis among countries.

In delving deeper, it seems that the cons still outweigh more of its pros, at least qualitatively. It might not be a healthy decision. It’s as though you are putting a third world and a first world country in the same bracket.

Of course, the more fortunate one would not agree on that, potentially creating chaos. But more importantly, every country has their own structures and different stages of growth. How can you expect them to be stable if their individual characteristics require different approaches to boost their economy’s growth?

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Last update on 2020-01-21 / Affiliate links / Images from Amazon Product Advertising API

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